Evaluating pricing for six month option

[SaulGoodman]

I'm looking for your input on an evaluation question. I read the thread linked below. Here is the scenario:

Contractors bid on an RFP with 4 option years after the base period. So we know that FAR Clause 52.217-8, Option to Extend Services, allows the government to extend for six months if they evaluated that option when they evaluated the proposals, but nowhere in the RFP did the government ever say that would evaluate and include the option when it came to pricing. The government took all of the pricing proposals, divded the final option year price by 2, then added that amount to what each contractor bid. Is that kosher? If the government planned to do that, shouldn't that have been made clear in the RFP and the evaluation criteria? Thoughts? how can the government evaluate the 6 month option price if all they have is hourly rates, but no determination of hours worked? Shouldn't the bidders have had the opportunity to adjust their pricing if they knew they might get another six months worth of billables?

http://www.wifcon.com/discussion/index.php?/topic/609-option-to-extend-services/

[ji20874]

I don't think there is any major error in the agency's approach. If the solicitation included the provision at FAR 52.217-5, Evaluation of Options, then all is well. Do you think the approach is unfair to any particular offeror?

The GAO wrote in Raymond Express International LLC, B-409872.3, Sep. 11, 2015:

Competitive prejudice is an essential element of every viable protest; where the record establishes no reasonable possibility of prejudice, we will not sustain a protest, even if a defect in the procurement is found.

[Todd Davis]

You may find this past discussion useful.

http://www.wifcon.com/discussion/index.php?/topic/2653-dash-8-clause-far-52217-8-and-major-contracting-services-gao-decision/

[Don Mansfield]

I don't think there is any major error in the agency's approach. If the solicitation included the provision at FAR 52.217-5, Evaluation of Options, then all is well. Do you think the approach is unfair to any particular offeror?

The GAO wrote in Raymond Express International LLC, B-409872.3, Sep. 11, 2015:

Competitive prejudice is an essential element of every viable protest; where the record establishes no reasonable possibility of prejudice, we will not sustain a protest, even if a defect in the procurement is found.

So you think the agency would not have to disclose how they were going to evaluate the -8 option in the solicitation?

[ji20874]

Don,

So you think the agency would not have to disclose how they were going to evaluate the -8 option in the solicitation?

Did I say that? No, I didn't say that. I said "If the solicitation included the provision at FAR 52.217-5, Evaluation of Options, then all is well." I think using the provision at FAR 52.217-5, Evaluation of Options, is a disclosure of how an agency is going to evaluate options -- by the provision's own text, it covers all options, and the -8 option is an option. It isn't the most complete disclosure, but it is a disclosure.

[Don Mansfield]

ji,

Did I say you said anything? No, I didn't say that. I asked you what you thought based on something you wrote. When you wrote "all is well" I wanted you to clarify whether the "all" included the fact that the solicitation did not disclose how the -8 option would be evaluated.

You think that FAR 52.217-5 advises offerors how an agency is going to evaluate options. This is what the provision states:

Except when it is determined in accordance with FAR 17.206( b ) not to be in the Government’s best interests, the Government will evaluate offers for award purposes by adding the total price for all options to the total price for the basic requirement. Evaluation of options will not obligate the Government to exercise the option(s).

This provision just states that the value of the options will be included when determining the price of an offer for evaluation purposes. It says that options will be evaluated, but it doesn't say how the Government is going to evaluate options.

[ji20874]

If the solicitation included the provision at FAR 52.217-5, Evaluation of Options, then it did say how the Government will evaluate the options:

"the Government will evaluate offers for award purposes by adding the total price for all options to the total price for the basic requirement"

It isn't the most complete disclosure, but it is a disclosure of how the Government will evaluate options. Personally, I prefer a more complete disclosure for the -8 option, but I'm trying to be helpful to the original poster by answering his or her questions in the context of the solicitation he or she is dealing with. If you have any better answers for the original poster, please share them -- I'm sure he or she would love to hear from you that the solicitation was fatally flawed and that the GAO will sustain his or her protest.

[Don Mansfield]

ji20874,

Take a look at what you quoted. It says how the Government will evaluate offers that contain options. It does not say how the Government will evaluate options.

FAR 52.217-5 doesn't say how the price of options will be evaluated any more than how the price of the basic requirement will be evaluated. It just says that they will be added together for purposes of evaluating offers.

[ji20874]

Don,

Please tell the original poster that, in your opinion, the acquisition was fatally flawed and that the GAO will sustain his or her protest.

However, based on what I read in the original posting, I don't think the solicitation was fatally flawed (not a perfect solicitation, but not fatally flawed) and I don't think the original poster will prevail in a protest because of an absence of competitive prejudice. That's my opinion.

[Guest Vern Edwards]

Saul:

I am going to tailor your post to show the questions you asked:

Contractors bid on an RFP with 4 option years after the base period. So we know that FAR Clause 52.217-8, Option to Extend Services, allows the government to extend for six months if they evaluated that option when they evaluated the proposals, but nowhere in the RFP did the government ever say that would evaluate and include the option when it came to pricing. The government took all of the pricing proposals, divded the final option year price by 2, then added that amount to what each contractor bid.

(1) Is that kosher?

(2) If the government planned to do that, shouldn't that have been made clear in the RFP and the evaluation criteria? Thoughts?

(3) how [sIC] can the government evaluate the 6 month option price if all they have is hourly rates, but no determination of hours worked?

(4) Shouldn't the bidders have had the opportunity to adjust their pricing if they knew they might get another six months worth of billables?

I answer as follows:

(1) The method you described is kosher, meaning that it does not violate any rule that I know about.

(2) Yes, and the failure to do so could cause problems, but I don't know enough about the procurement to say for sure.

(3) Good question. It is a long standing rule of the GAO that you cannot evaluate price based on consideration and comparison of only hourly rates. You must evaluate based on total cost to the government. See Lockheed, IMS, B-248686, September 15, 1992, 92-2 CPD ¶ 180. See also Nash, "Evaluating Price or Cost in Task Order Contracts," The Nash & Cibinic Report, November 2005.

(4) I don't understand that question. It's badly worded. You can try again, and if I have time I'll try to answer.

[Don Mansfield]

Don,

Please tell the original poster that, in your opinion, the acquisition was fatally flawed and that the GAO will sustain his or her protest.

However, based on what I read in the original posting, I don't think the solicitation was fatally flawed (not a perfect solicitation, but not fatally flawed) and I don't think the original poster will prevail in a protest because of an absence of competitive prejudice. That's my opinion.

No deal. I wouldn't say that it's fatally flawed, nor would I say that "all's well" if the solicitation contains FAR 52.217-5. The agency may not have adequately disclosed how offers would be evaluated, which would be a problem.

I think it is noble of you to try to help Saul with his problem. I hope you realize that by questioning your claims, I'm trying to help him, too.

[ji20874]

Don,

If you want to help Saul, please do so -- so far, you have written nothing that would be helpful to him or to anyone else. You won't say the acquisition is fatally flawed, and you also won't way that all is well if the solicitation included the provision at FAR 52.217-5, Evaluation of Options. Please join me in being noble by helping Saul with his problem -- answer his questions. You need not direct any more comments to me.

[Don Mansfield]

Don,

...so far, you have written nothing that would be helpful to him or to anyone else.

If by "helpful", you mean I didn't provide him a poor answer quickly, then I am guilty.

However, if I had written nothing, then he or anyone else may have been persuaded by your argument that "all is well" because the solicitation contained FAR 52.217-5. Once it became evident that the provision didn't actually say what you believed it said, he or anyone else may have questioned the quality of your advice. I think that's helpful.

Then, Saul or anyone else reading your responses to me may have thought "Gee, this ji guy gets obnoxious when you question him. He seemed to take it personally when Don called him out on his argument. Instead of acknowledging his mistake, he's trying to make Don out to be the bad guy for not helping. He needs to chill out." Then, Saul or anyone else may use this knowledge to evaluate your posts and decide whether they want to interact with you on this forum in the future.

Now, I will take your advice and direct no more comments to you. However, if you decide to direct any more comments to me, I promise to disappoint you.

[SaulGoodman]

Thank you all for weighing in. In the last question, what I meant was this: if bidders knew that the option was going to be evaluated as well, might they have submitted pricing? For example, if you reasonbly expected to get another 6 months out the deal, you might lower price a tiny bit.

[Guest Vern Edwards]

if bidders knew that the option was going to be evaluated as well, might they have submitted pricing?

I don't know. A smart contracting officer would have instructed competitors with regard to the pricing and evaluation of -8 options.

[Jamaal Valentine]

Or if they knew the -8 option was going to be evaluated by taking the last year/option period [rate], and determining a six month price, offerors could lower their final year/option price and raise the preceding years to game the game.

[ji20874]

Thanks for the reply, Don -- we will have to disagree -- I still say the provision at FAR 52.217-5 does explain how the Government will evaluate options ("...by adding the total price for all options..."). You think it doesn't. I think that if an agency evaluates the 52.217-8 option by using half of the last year's price, and evaluates all offers consistently in this manner, then probably all is well -- with no competitive prejudice, there is no basis for objection.

Saul,

The -8 option is never really intended to be exercised -- it may be exercised (for example, see possible reasons in FAR 37.111), but it would not be exercised in a perfect world. And the -8 option is not intended to be pre-priced by the contractor; rather, the rates currently in place in the contract carry over into the six-month period. It is a customary practice to evaluate the -8 option by using half of the last year's price, and doing so seems to treat everyone equally. I always try to include language to avoid ambiguity in this matter, but it appears your contracting officer did not do so. Did his or her evaluation of the -8 option in this manner in your case affect the outcome of the acquisition?

[jwomack]

The -8 option is never really intended to be exercised -- it may be exercised (for example, see possible reasons in FAR 37.111), but it would not be exercised in a perfect world. And the -8 option is not intended to be pre-priced by the contractor; rather, the rates currently in place in the contract carry over into the six-month period.

You obviously don’t work in any office I’ve been in. The -8 clause gives the government fairly significant flexibility with regards to contract length. Why would you not take advantage of this flexibility “in a perfect world”?

Also, are you saying contractors should not price a part of the contract they may be legally bound to perform under? And that they should always carry over a rate that is offered for a different contract period?

[apsofacto]

We used the 6 month extension when a follow-on procurement was running late, which was often.

Hi, JWomack

The clause reads:

The Government may require continued performance of any services within the limits and at the rates specified in the contract. These rates may be adjusted only as a result of revisions to prevailing labor rates provided by the Secretary of Labor. The option provision may be exercised more than once, but the total extension of performance hereunder shall not exceed 6 months. The Contracting Officer may exercise the option by written notice to the Contractor within _____ [insert the period of time within which the Contracting Officer may exercise the option].

I think many are carrying over rates from different periods by virtue of the highlighted passage. I think this explains why this extension is not explicitly priced out in some solicitations.

Hi, Ji,

Respectful disagreement here: I think it is also why it is not cool to add 50%, because the extension is supposed to occur within the limits specified in the contract. If you want more contract capacity, by all means raise your estimated quantities, but adding 50% is odd.

Hi, Don,

Respectful disagreement maybe: If my reading is correct, there is nothing additional to evaluate, and therefore nothing to explain.

Since I have disagreed with everyone, I'm logging off before anyone can respond!

[Guest Vern Edwards]

ji20874:

You said:

I still say the provision at FAR 52.217-5 does explain how the Government will evaluate options ("...by adding the total price for all options...").

What the provision doesn't say is what number will be used as the price for the -8 option. The CO should explain how the option will be priced. That is an essential factor in how the Government will evaluate the options.

Then you said:

And the -8 option is not intended to be pre-priced by the contractor; rather, the rates currently in place in the contract carry over into the six-month period.

I used to think those things, too, but Don disabused me of those notions. The -8 clause, FAR 17.208(f), and 37.111 simply do not support those notions. FAR is vague about the pricing of the -8 option.

Then you said:

It is a customary practice to evaluate the -8 option by using half of the last year's price, and doing so seems to treat everyone equally.

I don't know what you mean by "customary," but I don't have any knowledge of what is common or ordinary practice in that regard, and I doubt that anyone else does. What people know is what they do and what they've seen. I do not know of any report of what practices really are. If know of a source for that information, please tell me.

[Jamaal Valentine]

ji20874:

Just to provide clarity to the readers, exercise of the -8 option is not limited to the possible reasons in FAR 37.111. The intent of the parties in including the option is a factor.

ASBCS Nos. 52280, 52281 (2002)

"The plain, objective, language of the Option to Extend Services clause is not limited as to the reasons for its use."

[ji20874]

Jamaal,

You're right -- my intent was only to provide examples...

Vern,

I did a search at the GAO website for "52.217-8" -- I opened all the hits that came up on the first page, and everyone one of those showed that the -8 would be evaluated by using half of the last-priced year's price (in none of those cases was the -8 option part of the protest). I think it is a customary practice, based on seeing what contracting officers do. I think many contracting officers include language describing this approach in their solicitations -- I do, too -- but apparently the contracting officer for the original poster did not. He or she probably should have. But those cards are already dealt. I don't think that oversight is a fatal flaw in that acquisition, but I say that not knowing everything. The original poster hasn't told us if he or she thinks its offer was prejudiced by that approach.

[apsofacto]

Hello Ji,

Cannot help but notice that the following search result is not kind to the points advanced in my earlier post!:

Major Contracting Services, Inc.

http://www.gao.gov/products/A87855

B-401472: Sep 14, 2009

The option to extend the contract here under FAR clause 52.217-8 was not evaas part of the initial competition, so that the exercise of this option amounts to a contract extension beyond the scope of the contract, and therefore effectively constitutes a new procurement . . . Thus, the agency could not have met the FAR Part 6 standards for full and open competition by simply exercising the option under FAR clause 52.217-8 . . . In such circumstances, the agency must justify theuse of noncompetitive procurement procedures in accordance with FAR Subpart 6.before exercising the unevaluated option . . .

I can't get to that conculsion from how the clause is written, but that appears to be how the game is played. I thought the intent of that clause was to let the Government use what contract capacity remains during a time extension *without* inflating the contract value. Looks like that arguement won't get me far with the GAO . . .

[ji20874]

Many people in our community thought Major Contracting Services was wrongly decided, but it is the precedent that is driving all of our -8 evaluations. I met the contracting officer for that case and learned a lot from him -- he thinks the case was werongly decided, too. But that was a messy case, with prior protests and corrective actions and so forth, and I wonder how that messiness drove the outcome.

[Guest Vern Edwards]

I wrote up Major Contracting for the June 2010 issue of The Nash & Cibinic Report. I think it was wrongly decided, but I think it was technically consistent with FAR 17.206 and 17.207(f). The agency should have rejected the GAO's recommendation.

The FAR councils opened FAR Case 2010-003 to address the issue, but the case was closed without action when the councils could not agree. The DAR Council indicated it would open a case, but it appears that never happened.